1) Lázaro, you are one of the creators of FinTechStage. Could you explain to us FinTechStage’s activities?
Of course. FinTechStage is a network of innovators and investors obsessed with encouraging the creation of FinTech ecosystems in all financial centres. Traditionally, London and New York have been the go to places for start-ups to get the support and funding necessary for success. We believe that there is a clear opportunity for all financial centres to follow their example. Our ambition is that start-ups find support locally in as many markets as possible.
FinTechStage operates through meet-ups, workshops and events. We gather as many of the stakeholders as possible in a given city/market to create or push the FinTech agenda.
Based on their level of maturity, we have categorised local FinTech eco-systems in four groups: Disconnected, Disorganised, Organised and Recognised.
In many countries there is some form of FinTech Start-up gathering, some access to (limited and not very sophisticated) capital, and an established banking sector.
FinTech is an interesting subject of debate among local players but there is no obvious organisation or place to even have a meaningful discussion. Capital and start-ups are definitely not focusing on FinTech, and, at best, there is some form of generic multi-industry incubation and acceleration infrastructure for start-ups.
Not surprisingly, there is very little locally driven innovation and the country is often the target of global FinTech players that are difficult to integrate within existing frameworks.
Up until only 12 months ago, this category (in developed countries) was by far the biggest. In this type of eco-system you can easily identify the FinTech initiatives, either from financial institutions or private (sponsored) incubators and accelerators. Although there is little ’local’ FinTech capital available, venture capitalists have these countries on their radar and local scouting is done by global investors themselves.
Disorganised eco-systems tend to set up local events to foster the creation of a local FinTech community including all the different players. These events allow the interaction of local experts with international speakers and support the creation of a local FinTech agenda over time.
In this type, much of the innovation is globally sourced with some local activity. Regulation lags behind and is seen as an obstacle.
An Organised (FinTech) system has a local catalyst, and it usually works best when this role is taken up by some sort of local, public or private community-based, non-commercial body. Examples of such are: Luxembourg for Finance, Holland Fintech, FinTech CH, FinTech France, FinTech HK and others. In some cases, we also find central banks or regulatory bodies playing this orchestration role like, for example, the Monetary Authority of Singapore (MAS).
The most striking difference in between Disorganised and Organised eco-systems is the emphasis on sharing and collaboration. In Organised eco-systems they have been able to establish a collaborative environment in which to cooperate while preserving enough space for competition. There is open dialogue in between the private and the public sector about lifting obstacles to innovation.
In this category, there is a thriving local innovation scene with well established start-ups active internationally. Public-private dialogue starts to focus on the development of a common agenda and to enact enabling legislation/regulation.
London and New York are the only two eco-systems in this category.
Here we find a robust government-led agenda to encourage the development of a thriving eco-system backed by an active private sector. Public-private dialogue is intense, open and highly collaborative.
In these eco-systems the emphasis has moved from ‘lifting obstacles’ to using regulation/legislation as an ‘enabler’ to making the eco-system even more efficient, inclusive and attractive.
At FinTechStage we work with countries in all stages of development but find that our efforts are most effective when working with Disorganised eco-systems as we are able to become a catalyst for their maturation process.
Recently, we have also started to develop a Financial Inclusion segment of our business and are working with the Bill & Melinda Gates Foundation and the Omidyar Network to launch a series of events in emerging markets. Our flagship event in this vertical, the FinTechStage Inclusion Forum, will take place in Jakarta next February and will feature RegTech and the need for increased dialogue in between regulators and innovators.
2) Banks and FinTech start-ups are increasingly collaborating. What can a FinTech start-up gain from a partnership with a bank? And in return, what advantages can a traditional Payment Service Provider ( ) get from this cooperation?
There was a time when start-ups and banks saw each other as competitors. Those days are long gone. Start-ups see banks as partners who can provide pragmatism, funding and, most importantly, access to customers and scale. Banks see start-ups as the most efficient and effective way to get their R&D done and extend their portfolios. Unfortunately, it is also true that some banks see their relationship with start-ups as a mere marketing exercise.
Relationships that work are based on clear goal setting, extensive communication and joint customer experimentation.
3) What about the drawbacks? Which aspects should both banks and FinTech start-ups pay attention to before they commit to a partnership?
Unrealistic expectations and hidden agendas are at the core of all deals gone bad. Banks should be conscious of their own inability to ‘integrate’ and start-ups should be careful when thinking that they can go it alone.
The bank integration point refers to how the start-up entity will work with the bank and, also, how the ‘product’ of the start-up will be integrated into the portfolio of solutions offered by the bank. An ‘arm’s length’ partnership strategy seems to work best from an organisational integration perspective as it prevents start-ups being swallowed up and paralysed by the processes and procedures of a much larger banking organisation.
The product integration angle is simpler but it often poses serious challenges as banks insist on ‘look and feel’ requirements and strict change management and version control practices that are foreign to the nimble start-up. There are no hard and fast rules here in terms of the right approach to product integration. It often comes down to being aware of the issues and tackling them openly and proactively.
4) How do you see the future of innovation in payments?
Surprisingly maybe for some, I see the future of payments in how new entrants serve the unbanked and underbanked populations both in emerging as well as mature markets.
Firstly, in emerging markets where little or no legacy infrastructure exists, solutions providers are forced to start from scratch. Developments in financial inclusion around the world point to ways in which significant margins can be obtained by going back to basics and providing simple and socially conscious solutions. No schemes, no four-corner models, no interchange fees. The overriding principle is that, when it comes down to payments, solutions need to be better than cash. Instantly available and secure e-cash for all parties involved. Ironically, we in the developed world have gone full circle and are now (again) talking about faster and instant payments.
Neo-banks in mature markets that seem able to address the needs of the traditional bank customer as well as the unbanked and the underbanked also offer an interesting and study-worthy example. They have managed to make ‘unprofitable’ segments of the population profitable by utilising digital only channels, superior data analytics, innovative approaches to credit scoring, behavioural analysis, and tailored products among other techniques. Again, simplicity is key to their propositions and payments are at the heart of their offering.
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